Thursday, January 08, 2009

The Satyam Double-Cross?

A popular mid day newspaper today has floated an interesting theory on the Satyam scam - a double-cross if you will. It is simple, so elegant that a scientific mind would take immediately to it. Here's the essence: Satyam's missing money did not not come in; it was taken out after it did.

Now here's why I think that makes sense.

Consider this. Mr Raju started Satyam back in 1987. He started with 20 employees and grew it with his patience and relentless energy. At some point he went public to raise money. But like all enterpreuners, he still feels the company is his baby. He should be deriving all the benefits from it - his small 8% stake not withstanding. In such a scenario, is he more likely to pump in money of his own, without accounting for it just to keep a hold on it? At a peak price of Rs. 542, his share would be about 3k crores. Would he rather pump in money against his own name, or try to take out a share?

Again, he says that very few people were aware of the fraud. Now, if he was infact raising false invoices, etc it would be extremely hard to do. 600 crores of excess revenue would mean that he would have to create several fictitious projects/clients. New projects are probably always discussed with lots of meetings to decide on pricing, etc. If these projects were fictitious, a lot of people would have to be involved. Similarly, if their operating margins were only 3%, what were the marketing folks doing? Did they not know what the operating costs were? Were they negotiating conrtacts with such small mark-ups? If there was 5k crore of fictitious money coming into the country, wouldn't the RBI know? After all, all this money would be earned in USD/EUR etc.

On the other hand, consider the theory that he was siphoning of money. All you have to do is to issue cheques from the various bank accounts while taking your CFO into confidence so he would not make entries in the books. Nobody else would need to be taken into confidence, except perhaps one other person, to sign off on the cheques. The money could then be used to speculate in the stock market, real estate or to fund bribes for winning Government contracts. The hope would be that the returns on this speculation would be retained by Raju while the original money would be returned to the accounts and the books would never reflect this. Now, given that the market has tanked over the last 10-11 months, how hard is it that Mr Raju lost a lot of money on those bets. With no money to return, Mr Raju has no other option left. He writes out a letter trying to look like a victim of child-love rather than egregious greed.